The New York Times has an investigative report out this weekend on how the creation of “opportunity zones” created under the 2017 tax bill has been working out. Ostensibly intended to direct investment at impoverished areas, the whole idea has largely turned into a scam by which the rich get richer, and everyone else gets left further behind.
The basic idea is that in exchange for investing in an opportunity zone certified by the U.S. Treasury — there are around 8,800 — wealthy investors would be able to defer or even eliminate paying capital gains taxes on previous investments, and also possibly avoid paying taxes related to these new projects. The zones are supposed to be areas below the median household income that would particularly benefit from an influx of investment money; but while “[n]early a third of the 31 million people who live in the zones are considered poor — almost double the national poverty rate [. . .] there are plenty of affluent areas inside those poor census tracts. And, as investors would soon realize, some of the zones were not low income at all.”
Rather than creating a flood of investment to neighborhoods that desperately need it, wealthy individuals and companies have zeroed in on those “affluent areas” included in the opportunity zones. There is opportunity, all right — to make a killing for the rich, by building out real estate for the rich. And so “billions of untaxed investment profits are beginning to pour into high-end apartment buildings and hotels, storage facilities that employ only a handful of workers, and student housing in bustling college towns, among other projects.” Adding to the portrait of one-percenter corruption, the president’s own businesses, family, and cronies are seeking to take advantage of this tax provision. It’s almost as if they wrote the laws to. . . benefit themselves?
It was bad enough that the Trump administration’s biggest idea for helping impoverished neighborhoods was a plan to enable the richest people in American to avoid paying taxes. But even on those contemptible terms, the plan is turning out to be what critics said it would be: a way to make the rich richer at the expense of the rest of us. Not only is the tax break component a way for rich people to pad their wealth by ensuring they don’t pay their fair share to the Treasury, these investments are literally helping build a physical infrastructure for the wealthiest Americans to live apart from the rest of the U.S. And the fancy hotels and condos are not only valuable commodities for the investors, but are valuable investments for their wealthy purchasers as well.
The Hot Screen got an early warning of this large-scale grotesquerie last month, when our hometown paper The Oregonian ran a story on an unprecedentedly upscale condo and hotel project to be constructed smack in the middle of Portland’s downtown. It will be 35 stories tall (which would make it one of the highest in Portland), with 11 floors dedicated to a Ritz-Carlton hotel, and other floors occupied by condos branded by the hotel chain. The guest rooms will cost $450 a night, about double the most expensive lodgings in the city at present. Construction costs are estimated to be $600 million — but the whole plan is being enabled because the developer aims to get a whopping $150 million via opportunity zone investments. Another way of looking at it: investors will put $150 million into the project so as to avoid up to otherwise avoid paying $60 million in taxes (based on a 40% tax rate that could otherwise hit those capital gains), and on top of this will be able to reap gains from this new investment with significant additional tax benefits.
Even without the opportunity zone angle, this project would present as a grotesquerie on the Portland cityscape. Beyond the moral outrage of the city not being able to find shelter for thousands of homeless people, Portland has experienced a more general crisis of affordability for years now, as rapidly escalating rents make less and less of the city affordable for working- and even middle-class individuals and families. Developers already routinely walk away from obligations to provide lower-income housing, despite having received municipal tax breaks based on promises to do so (afraid of picking fights with developers, the City lets them get away with it).
So it’s a bit of a trip to bizarro world to see a tax provision officially meant to encourage investment in low-income neighborhoods being used instead to supercharge processes that reach beyond simple gentrification, toward something sublimely terrible: the ability of wealthy developers to avoid paying taxes in order to build real estate properties that are so stratospherically beyond the price range of people already barely able or unable to afford to live in Portland, when that very same tax provision was promoted as benefiting ordinary Americans. And so our city will be graced with a federally-subsidized hotel and condo complex that 99% of us can’t afford to live in or stay at. Adding insult to injury, apart from the short-term construction jobs created, employment in the building will involve catering to the needs of filthy rich individuals; Ritz-Carlton’s motto is “We are ladies and gentlemen serving ladies and gentlemen,” but this Downton Abby-ish phrasing hides the fact that employment there inevitably involves people not being paid nearly enough to make real the fantasies of their social betters. That it’s all to be done through the miracle of tax laws written by and for the rich should inspire not gratitude that a few jobs have been created, but outrage at the thought of all the better jobs and homes that could have been had through policies truly aimed at benefitting ordinary Americans.
This Portland project also carries a lesson about the larger corruption of Trumpism; it demonstrates how a racist and authoritarian-inclined president can gain and retain the loyalty of his fellow millionaires and billionaires, whose interests he sees best of all. And when a city government like Portland’s ignores the waste of tax dollars and the basic inequity in such a boondoggle, in the name of paltry job creation at the expense of further stratifying our city into haves and have-nots, it lends moral support to a regime overwhelmingly rejected by its own citizens, and tacitly endorses an economic model in which wealthiest accumulate more and more of the nation’s wealth.